The bargainers’ objective functions I

To be able to predict the outcome of the bargaining process it is necessary to first specify the goals of the bargainers. One common assumption is that the bargainers desire to obtain the wage rate that maximizes their subjective expected utility. This term emphasizes that the utility to be gained from any given wage demand can never be known with certainty by either TWU Local 100 or the MTA prior to bargaining but must be predicted on the basis of subjective estimates of the benefits and costs that go with it. 

The starting points of the reaction functions show the initial wage demand of TWU Local 100 and the initial wage offer of the MTA. However one has to consider how the negotiators arrived at these particular wage demands? There are many answers one can chose from. Each bargainer demands in the negotiations that the wage maximizes its subjective expected utility. To determine this wage each bargainer must compare the expected benefits with the expected costs for each wage rate in the contract zone. This calculation for the TWU Local 100 bargainer has hypothetical values for the four variables.

The higher the TWU Local 100 wage demand the lower the probability that the MTA will accept it without a strike. TWU Local 100 bargainers utility increases slowly for a wage of 90¢ or less more rapidly by up to $1.20 and at a diminishing rate of up to $1.50 as the presumed upper limit of the contract zone. The rationale for this pattern might be the following. TWU Local 100 negotiators may feel that they have to get at least 90¢ in order to keep the membership’s wage up with the rate of inflation or the industry pattern since a wage increase below that would provide relatively little increase in utility. Utility increases at a faster pace for wage increase between 90¢ and $1.20 as the bargainers demonstrate their ability to win more from the MTA. Beyond a $1.20 increase, utility grows at a diminishing rate as TWU Local 100 bargainer’s success leads to a growing concern over negative employment effects and the threat of layoff from the MTA. However with a low wage offer the probability of striking increases. If the wage demand from TWU Local 100 is a low wage demand then that will send a message that the negative utility from the costs are also low while the TWU Local 100 wage demands escalates. However so does the duration of a strike necessary to obtain it therefore causing strike costs to rise at an increasingly rapid rate.